Tuesday, April 30, 2013

One of my old posts that has been getting readers’ attention again this month is “Health Care Cost Avoidance: New Incentives for Congress.” This was something I wrote after Congress had moved to take more responsibility for health care costs. I predicted that budget pressures on Congress would lead to greater resistance in the future to policies that cause illness, as more of the costs of that illness would fall within the federal budget. I specifically predicted new pressures on the FDA:

Some of the more embarrassing failures of the health care system, like last year’s H1N1 flu vaccine debacle, may come in for more scrutiny now that the government is on the hook for a greater fraction of the failures caused by medical misadventures. The Food and Drug Administration (or its successor for drug regulation) may come under more pressure not to approve prescription drugs that are a risk to create serious or long-term illness in the people who use them.

When I think over the news stories of the last three years, it seems to me that this is happening in a small way already. The FDA in recent years is less likely to approve new drugs that cause illnesses more serious than the ones they cure and quicker to restrict and withdraw drugs that are doing harm to consumers. It is a shift I am sure will pick up a few years from now after Congress realizes how the FDA’s actions, intended to boost private industry, are creating a multibillion dollar hole in the federal budget.

This shift will eventually reach the Centers for Disease Control and Department of Agriculture too. Some of the “public health” campaigns that actually don’t improve health so much as they boost corporate profits will be scaled back, and some of the recent approvals of genetically modified crops will certainly be withdrawn after the health care costs are added up.

Sunday, April 28, 2013

If you were to go by the U.S. news media, you could be forgiven if you thought the biggest disaster of the month was the bombing at the Boston Marathon, the explosion at the fertilizer factory in Texas, the floods in Illinois and neighboring states, or the China earthquake. But if you combine the lifestyle impact and loss of life in those four events, it does not come close to the effects of a factory collapse in Savar, Bangladesh. By this afternoon, 362 dead bodies had been recovered from the building, and a similar number of people are still missing inside. Most of the people who worked in the building escaped within the first hours, but hundreds were taken to hospitals with injuries. The implications of the event have not gone unnoticed across the country, where today a general strike is underway as workers call for enforcement of workplace safety rules.

It may have become a political flash point in Bangladesh, but the level of neglect that led to this tragedy is shocking even from a distance. The building was built without a permit and with an inadequate design. As one wall started to come apart, factory operators defied an evacuation order. The building could easily have been remedied so that it could have stood solidly, at a cost far less than that of digging through the rubble in the five days since the collapse. In other words, for this disaster to happen, one thing after another had to go wrong and be ignored. To put this in perspective, people were not injured in the retail spaces in the same building because those managers and workers heeded the evacuation orders. In all, it is a sequence that probably couldn’t happen in a Western country or even a few kilometers away in Bangladesh’s capital Dhaka.

But it is only the scale of this disaster that makes it exceptional. The broad outlines of the story are repeated on a smaller scale every day. When people come to harm, it is more likely to be from neglect, or a basic lack of energy, than from the random exogenous events that we most fear. People rightly fear the effects of lightning on golf courses, but ten times as many people on golf courses fall from lifestyle-related illnesses — from illnesses and lifestyles that, in most cases, could easily be remedied if we were not so easily distracted by the thought that hoping for the best might be good enough.

Friday, April 26, 2013

The New York Fed obviously wouldn’t call it a bubble, but its new report suggests that many people who invest in a higher education aren’t benefiting financially. By some measures, 30-year-olds who borrowed money to go to college appear to be worse off financially on average than those who never went to college, a reversal of a long-term pattern. Banks too have seen this shift, and have become reluctant to issue car and home loans to student loan borrowers whose student loans have not been paid off.

Banks have their money in everything, but fish? Yes, fish too. When Spanish seafood producer Pescanova filed for bankruptcy amid a laundry list of financial irregularities, a big part of the back story in the bankruptcy filing was the collapse of two regional banks, Caixa Galicia and Caixa Nova. These two banks were not just Pescanova’s two largest “independent” shareholders, but also an effectively bottomless source of working capital. The company apparently did did not know to adjust when the two banks were nationalized, and continued to take risks as if it still had a reliable line of credit. It started to sell off subsidiaries, which are scattered around the world, only in its last few weeks, after it was already too late to avoid a bankruptcy filing. For the state-managed successor to the two banks, the bankruptcy probably wipes out the value of its shares and some part of the loans also, billions of euros in total. It might seem fishy now that banks were involved in the first place, but of course these questions are never asked quite so loudly when things are going well.

There was a cluster of bank failures last weekend, and it continued tonight. Douglas County Bank in Georgia failed, with $314 million in deposits. It is not connected to a bank of the same name in Kansas. The failed bank was the subject of a consent decree in 2009, when it agreed to improve its management oversight and the quality of its lending. The bank’s liquidity suffered as it was unable to sell off foreclosed real estate. By last year, it had developed an extraordinarily high level of non-performing assets, prompting financial observers to put it at the top of some lists of banks likely to fail.

Hamilton State Bank is taking over the deposits and purchasing 82 percent of the assets.

Farther north in North Carolina, state regulators closed Parkway Bank. CertusBank is taking over the $104 million in deposits and purchasing nearly all of the assets. CertusBank had previously purchased several failed banks in South Carolina and neighboring areas of Georgia.

Thursday, April 25, 2013

In another week, gasoline prices may be down 20 percent from their recent peak. The sharp decline is caused largely by austerity budgets. With fewer people working, fewer people are driving to work, and the effect on gasoline consumption is large enough to reduce gasoline and oil prices. The stimulus effect of less expensive gasoline is larger than that of the recently expired payroll tax cuts but not large enough to counter the effects of federal spending cuts. In a way, this effect is ironic. Looking at it another way, it goes to show how little impact the current government spending plans have on the economy. If the government were to push hard for full employment, gasoline prices near $5 a gallon would represent a major economic obstacle.

Monday, April 22, 2013

A week later, it is easy to look back and note that most of the early reports on the bombings in Boston were wrong. Three to five bombs, 20 to 30 people injured, a suspect or suspects in custody — these were the main points of the story hours after the incident, and all were speculative embellishments used as a substitute for facts. If we bemoan this kind of error in news reporting, though, it happens far more often in the other areas of our lives. It is the result of our story-teller nature. When facts don’t seem to go together, we collect more facts, just enough to form a narrative, even if the facts we can get are suspect. As better facts come in, we may swap out facts and adjust the story, cling to the original story, or just get more confused. I remember adjusting my own narrative of the bombings when the number of bombs declined from possibly five to definitively just two. It was disconcerting to make even this small adjustment, as I had to concede that I had been wrong in my previous understanding. People who have more of an emotional attachment to a narrative may have more resistance to updated facts. Though we are reluctant to admit it, this is the way the human mind processes facts. They emerge from a mishmash of emotion, speculation, story-telling, and hearsay. It is no wonder if it is an imperfect process. How it happens at all is something philosophers have long labored to explain.

Friday, April 19, 2013

Gold had its most abrupt price decline ever on Monday, and no one seems to know why. The timing could point to an urgent liquidation of national or bank gold holdings in Europe. Analysts are looking at Cyprus as a possible seller of gold, but while Cyprus is debating the merits of selling some of its gold holdings, there is no indication that it has done so.

People in Cyprus can start to catch up on their rent payments, with new rules that allow a larger but still modest amount of money to be transferred between banks in Cyprus. Capital restrictions on Cyprus bank accounts have forced people there to do many routine transactions in cash.

In Spain, even if a top Santander executive is eventually removed from his post because of his criminal past, a new banking ethics law passed last Friday buys him a little time. Administrative proceedings against him had to be scrapped, and new hearings can’t take place until regulators at Bank of Spain have had a chance to look over the new law.

The IMF criticized the United Kingdom’s austerity program this week, saying it was putting the country’s economy unnecessarily at risk. Separately, Fitch downgraded the U.K. this week, also citing the tax revenue shortfalls caused by austerity budgets.

It was the first mass bank closing weekend of the year in the United States. State regulators in Florida closed two banks, Heritage Bank of North Florida in Orange Park and Ponte Vedra Beach, and Chipola Community Bank in Marianna. In-state banks are assuming the deposits and purchasing the assets. In Kentucky, the OCC closed First Federal Bank, with five locations in Lexington. Indiana-based Your Community Bank is assuming the deposits and purchasing the assets, excluding foreclosed real estate. It is an eastward expansion for Your Community Bank, which already had a presence in Kentucky. Combined, these three failed banks had $250 million in deposits.

Two state bank associations have sued Treasury over new regulations that require information reporting on interest paid to people in foreign countries. Similar reports have long been required to cover interest payments to U.S. residents. The complaint suggests that foreigners place deposits in U.S. banks to dodge income taxes, and these customers may have already withdrawn more than a billion dollars because of the more stringent reporting requirements. The bankers say the government should have taken this loss of business into account when drawing up its regulations and are seeking to have the rules overturned.

Thursday, April 18, 2013

Like many people in the United States, I was working on tax forms when last weekend began. I had to do tax forms for my own personal income taxes and two businesses, along with those of any friends who might ask for help, and I pictured myself spending the whole weekend at the computer in order to meet the deadline, which for me was effectively Sunday night. To my surprise, though, the process went more smoothly than in previous years, and I was finished before the day was over on Saturday.

Sunday morning, as I double-checked to make sure I hadn’t missed any filings, I realized why the taxes had gone so quickly. It was mainly because so few things had gone wrong on the computer. Web sites were fast, well-organized, and most importantly, online. PDF programs rarely failed to save or print filled-in form data, one of the recurring dramas of tax season before now. I didn’t crash any program at any point, not even at that high-suspense moment when, thanks to Congress’s sense of tax fairness, I have to have 15 forms and schedules open at the same time to determine the treatment of a line on Schedule D.

At my desk, it is easy to focus on the improvements in software, but there must have been improvements in hardware also at the data centers. The effect of the more reliable technology is higher productivity for me, as I get the same work done faster than in the past.

Friday, April 12, 2013

First: In Spain, two insolvent banks own commanding positions in the country’s olive oil industry. The banks now need to find a way to sell their olive oil interests to help pay for their banking debts.

Second: Statistics and reports have come out that paint a picture of a run on Cyprus banks that went on for a month, perhaps two months, before the EU rescue and is surely continuing now, subject to the limits of the currency controls. Much of the money taken out of Cyprus banks in March was deposited in banks in Greece. The Cyprus banks and government and the ECB managed to keep this story under wraps at the time.

Cyprus’ shell-shocked economy will need some kind of intervention to keep people from getting discouraged. This year’s big shift may be described as a move away from offshore banking and toward more subsistence farming.

In Virginia, the NCUA liquidated a credit union. Shiloh of Alexandria Federal Credit Union was a church-affiliated credit union with 624 members. At the end, it had $2 million in assets.

Thursday, April 11, 2013

PC sales are down. Depending on who you believe, unit sales are down 10 or 15 percent from a year ago. Hewlett-Packard, by some measures the largest manufacturer, saw sales decline 25 percent from an anomalous period a year ago. High-profile product releases at the end of last year had more impact than I gave them at the time, but they were still only enough to slow the decline for a moment.

It is not that people have stopped using PCs, but the replacement cycle is shifting, from around 2 years to probably beyond 10 years. With a slower replacement cycle there is a shift in attitude about new technology, in which people studiously avoid being too far ahead of the curve. This will result in an industry that looks quite different from the one we remember from five years ago, when people were more concerned about the risk of being left behind as technology shifted.

Wednesday, April 10, 2013

Recent comments by News Corp president Chase Carey and other television executives hint at how dark the U.S. television business has become. Carey suggested that the Fox network could become a pay-TV channel if current laws don’t permit the network to extract programming fees from CATV operators and similar services based on shared antennas and over-the-air TV broadcasts. People with antennas were “stealing” the networks’ valuable programming, Carey said. Carey walked back his comments the same day, saying Fox was not about to cut off its broadcast affiliates or its over-the-air viewers, but I am sure anxious TV station operators were checking with their lawyers yesterday just in case. Meanwhile, a chorus of other TV executives made similar comments about the option of canceling all over-the-air broadcasting.

These may be empty threats, but it still shows the financial stress that television is in. It’s a situation that doesn’t make any sense from the outside. Commercial television gets about $2,000 a year from nearly half of the households in the country when you combine advertising and subscription fees. It takes in a trillion dollars every few years yet still can’t make ends meet. Just like the targets of some of its more shady advertising messages, television is desperately looking for ways to make extra money. TV executives seriously think you’ll pay $4 a month to watch a pay channel on which every hour of programming comes with 24 minutes of commercials — it’s not just Fox that thinks this. Perhaps a few of them are right, but 100 TV channels can’t all charge subscription fees from all the TV households in the country — there isn’t that much household income to go around, and TV has to compete for revenue with less pricey forms of entertainment, such as books, cinema, Internet, and live music.

We are headed, then, for some kind of shakeout in the television business. I can’t say what form that may take, but if the whole television industry tries to spend more every year on content while television viewers look for ways to spend less, something has to give.

Tuesday, April 9, 2013

I wrote recently about blueberries and strawberries and their link to heart health. It is thought that berries promote cholesterol cleanup. Now we find that red meat may have the opposite effect.

The specific component of red meat that creates this effect is carnitine, a chemical combination of two amino acids. Gut bacteria that thrive on carnitine produce trimethylamine N-oxide (TMAO) in huge quantities after a person eats red meat. This creates a spike in blood levels of TMAO, and in blood vessels, it appears to block cholesterol cleanup.

This is the interesting part: it is not the red meat itself that creates the TMAO spike. It is the gut bacteria. If you eat red meat almost every day you have lots of this kind of bacteria, and you are guaranteed a TMAO spike every time you eat red meat. If you eat red meat only occasionally, you don’t have the same bacteria and you don’t get a TMAO spike when you eat red meat.

This is some of the best evidence yet that it matters what kinds of digestive bacteria you have, and that what you eat largely determines what digestive bacteria you have. There are other reasons not to eat a lot of meat, but for this particular effect the key is not to eat red meat day after day.

Here is another twist: carnitine is a popular food supplement, thought to promote weight loss, reduce asthma symptoms, and ironically, prevent heart attack recurrences. There is every reason to imagine that carnitine as a supplement feeds the same gut bacteria that thrive on red meat. Many people take food supplements every day, but that seems a risky way to use carnitine. Perhaps the most problematic scenario is the combination of daily carnitine supplements and occasional large meals of red meat.

As a general rule, it is better not to have strong tendencies in the way you eat and live — if you spend much of your time trying to repeat the same things, it can turn into a rut. The carnitine-TMAO connection is just the latest illustration of why this is so.

Monday, April 8, 2013

Can the FDA set aside the scientific evidence on drug safety for purely political reasons? A court decision Friday specifically overturned arbitrary age restrictions on the “morning-after pill,” but the ruling also has wider implications.

In 2011 the FDA, in a bizarre directive drafted by the HHS secretary presumably on orders from the White House, ordered age restrictions on levonorgestrel. There was not the slightest evidence that the 72-hour constraceptive drug was more dangerous or less effective for one age group than for another. The age restrictions were intended to have two effects: to force purchasers of all ages to show personal identification in order to strip away their privacy in making the purchase, and to prevent sales online. Possibly a third effect was intended: to make the drug less effective by delaying its purchase. By making it more difficult for consumers to obtain levonorgestrel, the White House intended to force hundreds of thousands of the most vulnerable women in the country, but especially school-age girls, into unwanted and otherwise avoidable pregnancies.

If you are thinking, “What a terrible idea!” you are not alone. This kind of law is an example of class warfare, and it is the nature of class warfare that the majority of people are targets. When enacted, the new restrictions on levonorgestrel were hardly a surprise, as rules restricting contraception have been a staple in class warfare for at least a century. In this connection, contraceptives are no different from unemployment compensation or food safety inspections. There are multiple hidden agendas at work in the efforts to prevent family planning, but the main political objective is to keep the masses of ordinary people off balance in their personal lives, continually facing stress and other barriers to action. If the majority of people are kept powerless, the rich and powerful can continue to rule the world as they see fit. This, it is safe to assume, was what the White House had in mind when it ordered the restrictions on levonorgestrel.

I think the court recognized this hidden agenda when it ruled that the FDA’s specific restrictions on the drug were arbitrary and unreasonable. The judge wrote, correctly, that the age restriction was a burden on “the overwhelming majority of women,” not just those who directly faced obstacles in purchasing contraceptives. After all, the mere possibility of an administrative obstacle in a crisis situation presents a burden. In U.S. law, laws that are too arbitrary are considered unconstitutional precisely because there may be a hidden agenda (or an unintended consequence) that sets one class of people against another.

The decision is important in its own right, but also because the same logic could apply the next time the White House thinks about using the FDA as an agent in class warfare. Perhaps there is reason to hope that the use of drugs and their regulation to keep people from controlling their own lives may not run much longer.

Friday, April 5, 2013

A parliament report says the economic troubles of 2007–2008 are not to blame for the collapse of HBOS in September 2008. The bank’s aggressive lending strategy led to losses large enough to sink the bank even in an ideal economy, the report says, while its executives were oblivious to the bank’s financial stress. The report recommends that three executives be banned from future work in banking.

A new plan for Libor would have to involve government regulation, and the first regulations went into effect this week. There will be fewer Libor rates, covering only five currencies. Banks’ reports to the Libor panel will be published for the first time, though with a three-month lag.

The abortive EU plan to turn most Cyprus bank depositors into stockholders had apparently been in the works for years. Worried economists this week latched onto documents published in December 2012 that spell out in surprising detail how such a process would work. The EU apparently intended to experiment with this process, and one wonders if officials might have pushed Cyprus’s banks into insolvency prematurely in order to test their new bank resolution theories. If that was the case, however, the EU experiment did not go as planned, as the scheme to replace deposits with illiquid and possibly worthless securities was rejected by the parliament in Cyprus.

A bankruptcy court today approved the liquidation of MF Global. The trustee said he believed all customer money would ultimately be returned. Unsecured creditors such as hedge funds, though, will get 34 percent or less on their claims.

U.S. regulators did such a sloppy job of foreclosure reviews that they were forced into an unfavorable settlement with the Wall Street banks on foreclosure procedures. That is the conclusion of a GAO inquiry released this week. The report noted that more than half of the foreclosures that auditors looked at were defective in some way.

The U.S. job market is suffering from the federal government’s austerity budget. An astonishing 500,000 workers are estimated to have dropped out of the labor market in March, in most cases because they decided not to look for a new job after being laid off. This reports bodes poorly for the U.S. economy and sent stock prices down today. Globally, banks are providing more than their share of job cuts, a trend that continues with new announcements this week.

State regulators closed a bank in Arizona. Gold Canyon Bank had $44 million in deposits. First Scottsdale Bank is taking over the deposits and purchasing the assets. It will continue to use the Gold Canyon Bank name for the two branches.

Thursday, April 4, 2013

Dr. Weil this week wrote about berries this week. A study found that blueberries and strawberries reduce the risk of a heart attack by 1/3. It is easy to imagine how this could happen if the berries were just crowding out lower-quality foods, but that’s not the effect being observed here. It’s an effect that seems to be independent of everything else. It could be the anthocyanins that berries contain — they are known to help keep blood vessels clean — but that is just a guess.

Separately, a recent study reported in Fortune found that job stress can increase the risk of a heart attack. The link between low job satisfaction and heart attack has been known since the 1980s at least, but the effect may be larger than previously thought. Workers who can’t stand their high-stress jobs get about twice the rate of heart attacks as less-stressed workers doing the same jobs.

The way I see it, if you must work in a high-stress job year after year, it becomes all the more important to take the time to eat berries. You can expect the berries to undo some of the damage.

Wednesday, April 3, 2013

I happened to pass two grass fires today, each almost certainly sparked by a discarded cigarette. The weather forecast for the day cautioned of fires. We can predict fires but we can’t prevent them. We can predict fires like these because people toss burning cigarettes in the grass every day, and weather models tell us which days these are likely to turn into a raging fire. We don’t really try to prevent fires like these. To do so, we would need a way to persuade people who have cigarettes that their actions have consequences on days like today. But if someone doesn’t believe in consequences on any other day — if a person has cigarettes at all it is obvious that their sense of cause and effect is weak at best — then why should today be different?

Tuesday, April 2, 2013

We saw this again yesterday in a court action where wealthy creditors tried to force the city of Stockton, California, to pay money it quite palpably didn’t have. It is a vaguely similar situation in Detroit and Harrisburg, two other cities that have been effectively bankrupt for more than two years but are kept out of bankruptcy court by legal obstacles set up by state officials.

A little less than a decade ago, the United States virtually eliminated consumer bankruptcy in order to benefit Wall Street. There is also the problem of student loan debt, which by being exempt from bankruptcy can put a person in debt for a lifetime. The problem with this is that without the protection of bankruptcy, there is nothing to prevent wealthy people, billionaire-investors if you will, from forcing people who are broke into a form of slavery.

It is not so different when cities are involved. Residents of cities like Detroit and Harrisburg aren’t getting normal city services in exchange for their tax payments anymore. Taxes have become, instead, little more than a way to take money out of the city, and there is no sign of this changing. In the absence of a corrective mechanism, it is a situation that could persist for generations.

Bankruptcy is in even worse trouble in Europe, where the EU sued to force a half-century of poverty onto Iceland (but lost that case), then tried to force Cyprus into a similar arrangement just to keep the bond payments coming from a few of its banks (the EU lost that vote also).

It is not just the wealthy and elite rallying against the idea of bankruptcy. We have also seen consumer advocates and unions try to extract concessions from businesses that had already been liquidated, or were days away from being wound down, seeming not to understand what it meant that there was no money left.

It does not help that bankruptcy has become an option only for those wealthy enough to hire really good lawyers. Bondholders took Stockton to court on the theory that the city wouldn’t be able to hire lawyers good enough to uphold the law. The fact that the big-money people pressed their case with so much confidence shows how much trouble we are already in. But if bankruptcy is limited to those who have a lot of money, it makes bankruptcy seem like a money-shuffling trick. The barriers to bankruptcy should be lowered enough that ordinary people can have access to bankruptcy protection too when they are actually out of money. If we could see that it was not just a way to protect the rich, bankruptcy protection would have a better reputation.

Monday, April 1, 2013

It is absurdly easy to predict that we will be growing different crops a generation from now. Some people focus on the genetically modified crops — crops genetically engineered to withstand shockingly high levels of specific herbicides. Accordingly, these specific herbicides have become so overused that they are rapidly losing their effectiveness. When the herbicides that go with genetically modified crops are abandoned, as they inevitably must be, the crops will no longer have a purpose. Others point to the changing climate, which is creating greater weather variability in half of the world’s most important croplands. Our current crops have been selected and adjusted to thrive in a certain exact kind of weather. When the weather of a growing season can’t be predicted at the beginning of the season, this kind of optimization is the kind of gambling where you can be almost certain to lose. Heritage versions of some of the same grains we grow now will do better, on average, when the weather becomes more unpredictable, even if they yield only half as much in “ideal” weather.

But there is more to the coming crop turnover than this. Even where the climate and weeds are not factors, our current crops are optimized for 20th century consumer tastes and 20th century farming equipment. In both areas, the 20th century represented a shocking departure from what came before, and its innovations have not fared so well in the 21st century. Current trends do not support the idea of more white flour any more than they support the idea of more fuel-hungry heavy equipment in the fields. Future farming equipment will have to be more nimble — more like robots than tractors — in order to take care of fields while not using so much expensive fossil fuels. The cost of fuel is enough of a factor that it will lead to crops that are compatible with the new equipment that is not so expensive to operate.

Another reason to expect change is that scientists may eventually come to grips with the process of nutrition. Already the current ideas of nutrition are as far ahead of the 20th century vitamins-and-minerals model as that was ahead of the 19th century nutritional model of meat and cabbage. Even if you look at vitamins and minerals, we still don’t understand why such a small fraction of them are actually absorbed and used, so that nutritional labeling and recommendations must be understood as impressionistic at best. However, answers in this area are starting to trickle in, and when we really know, I am certain we will change our minds about what we want to eat. Likely we will find we don’t have to eat so much, and that alone will change our current pattern of crops beyond recognition.